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Australian Coal Industry

- An Overview

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INDEX

Coal – An overview

Types of Coal

Australian Coal- Reserves

Quality of Coal

Coal Mines in Australia

Coal Production

Domestic Market

Export Market

Metallurgical Coal Market

Thermal Coal Market

Indian Companies in Australia

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Coal - one of the most important raw materials fuelling the infrastructure/ manufacturing activities across geographies

There are two types of coal:

Thermal Coal- used as a raw material for power generation, cement etc

Coking Coal- used as a raw material for steel production

Proven coal reserves in world is estimated to be around 909 billion tonnes.

Coal is located worldwide - it can be found on every continent in over 70

countries, with the biggest reserves in the USA, Russia, China and India

Coal contributes about 24 per cent of global primary energy demand, second

only to oil (35 per cent), and is used to produce 39 per cent of the world's

electricity and 66% of global steel production depends on coal feedstock

Coalification: The name given to the development of the series of substances known as peat, lignite or brown coal, sub-bituminous coal, bituminous coal, and anthracite

Degree of coalification: Also called the rank of the coal, increases progressively from lignite to low rank coal, to high rank coal, to anthracite

Hardness: The carbon content increases, while the oxygen and hydrogen contents decrease throughout the series. The hardness increases, while the reactivity decreases

Difference in Rank: Different amounts of heat and pressure during the geochemical stage of coal development cause these differences in rank

Literature Review on Coal

Coal

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Types of Coal Carbon/Energy Content of Coal High Carbon/Energy Content of Coal High

High Moisture Content of Coal High Moisture Content of Coal

Low Rank Coals 47%

Hard Coals 53%

Lignite 17%

Sub- Bituminous 30%

Bituminous 52%

Anthracite 1%

Thermal Steam Coal

Metallurgical Coking Coal

Largely Power Generation

Power GenerationCement ManufactureIndustrial Uses

Power GenerationCement ManufactureIndustrial Uses

Manufacture of Iron & Steel

Domestic/ Industrial Including Smokeless fuel

% o

f w

orl

d R

eser

ves

Uses

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AustraliaCoal Reserves

Australia has 78.5 billion tons of recoverable coal reserves, approximately 8.6 %

of the world total making it the fifth largest in the world.

Australia has more than 42 billion tonnes of economically recoverable reserves of

black coal throughout Australia. The production for export markets is currently

based on deposits in Queensland and New South Wales

Australia is the world’s largest exporter of black coal and the fourth largest

producer, behind China, the United States and India.

Australia’s share of the metallurgical coal export market was more substantial

than thermal coal, representing 62 per cent of global trade.

In 2006 Australia had around 72 billion tonnes of identified in situ black coal

resources enough to last about 180 years at current rates of production.

Identified In Situ Resources of Black Coal, Australia, 2006

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Quality of the Coal The Australian coal industry produces a wide range of coals and has the

flexibility to tailor products to suit customer requirements.

Main characteristics of the Australian coal are

High energy content

Low sulphur coal

Limited Ash content

Around 55 brands of thermal coal and blends

Two forms of coal are mined in Australia, depending on the region: high quality black coal and lower quality brown coal

Black coal is found in Queensland and New South Wales, and is used for both domestic power generation and for export overseas. Australian black coals are typically high in energy, low in sulphur and of a low ash content.

Brown coal is found in Victoria and South Australia, and is of lower quality due a higher ash and water content.

Australian coals have good coking properties and are generally low in sulphur (0.3 to 0.8 per cent) and many are low in phosphorus.

Australian thermal coal is typically high in calorific value (energy content), has moderate ash levels and is low in sulphur and heavy metal contents. Typical characteristics are:

calorific value in excess of 6000 kcal/kg and ranging up to 7200 kcal/kg;

sulphur content of 0.3 to 0.8 per cent;

ash content of 8 to 17 per cent;

volatile matter content generally between 24 and 36 per cent

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Coal Mines in Australia

At the end of 2006 there were 118 producing black coal mines in Australia, up from 105 at the end of 2005.

By State, there were

62 mines in New South Wales,

49 in Queensland,

1 in South Australia,

3 in Western Australia and

3 in Tasmania

The proportion of underground to open-cut mines has changed markedly over the past ten years. In 1997 the numbers were roughly even, with 58 underground and 60 open-cut mines in operation. At the end of 2006 the number of underground mines had declined to 44 - after reaching a low-point of 37 at the end of 2004. The number of open-cut mines increased significantly to 74 over the same period.

Labour productivity at Australian black coal mines has been rising steadily over the past decade, reaching a peak around 2001 and 2002, and declining slightly thereafter.

The Australian coal industry comprises over a hundred privately owned coal mines. The four major global coal suppliers, BHP Billiton, Rio Tinto (Coal and Allied and Pacifi c Coal), Xstrata and Anglo Coal have a signifi cant presence in Australia and account for around 71 per cent of Australian coal production.

Queensland and NSW mines together account for 95% of Australia's annual coal production. While both states produce both coking and thermal coal, production of coking coal is significantly higher in Queensland, while NSW leads in thermal coal production.

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AustraliaCoal Production

The world coal production was 6195 million tons in 2006 . The production of coal in Australia in 2006 is 374 Mt making it the fourth largest

producer in the world and the largest exporter of coal With exports of 257 million tonnes in 2005, Australia accounted for around a third of world

coal trade Total production of raw black coal in Australia in calendar year 2006 exceeded the 400

million tonnes (Mt) mark for the first time. The 405 Mt produced represented a small

increase of 1.6% over the calendar year 2005 figure of 399 Mt. After processing, 317 Mt of metallurgical and thermal black coal were available for

both domestic use and export in 2006, an increase of 3.0% over the 307 Mt produced in

2005. While the coal sector is highly export oriented, coal also makes an important contribution

to the domestic economy. Coal provides the primary fuel for 76 per cent of total electricity

produced in Australia. New South Wales and Queensland produced 97% of Australia's saleable output of black

coal - as well as 100% of Australia's black coal exports.

Black Coal Production by State

Million tonnes

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Coal Export Market Australia is the world's largest coal exporter, and black coal is Australia's largest

commodity export, worth nearly $A22.5 billion in 2006-07.

Australia exports 75% of its coal production, making the country the largest coal exporter in the world - a position Australia has held since 1986

The Asian market accounts for 80% of Australian coal exports with the top three markets being Japan (47%), Korea (12%) and Taiwan (9%)

In the metallurgical coal market, Australia is competitive in exporting coal to the Asian region and Europe.

In the thermal coal market, Australia is competitive in exporting coal to the Asian region, with its main competitors being China and Indonesia.

Australia is less competitive in exporting coal to the European market due to shipping distances, and as such the main competition is from South Africa, Colombia, USA, and the Russian Federation.

Contract prices for premium hard coking coal have been settled at approximately US$115 a tonne, an 8 per cent fall from the 2005 price of $125 a tonne. Prices are forecast to fall a further 13 per cent in 2007 to US$100 a tonne. The lower price is indicative of a slight easing of demand and increased supply, predominantly from Australia.

Coal Export by Destination

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Australian Metallurgical Coal

Market

Following a decline in 2005-06, Australian exports of metallurgical coal are forecast to rise

by around 10 per cent to 132 million tonnes in 2006–07. However, the value of exports is

forecast to fall as lower prices more than offset higher volumes.

In 2007-08, Australian exports of metallurgical coal are forecast to increase by a further 5

per cent to 139 million tonnes, reflecting higher mine output and increased export capacity

in Queensland. The value of Australia's metallurgical coal exports in 2007-08 is forecast to

rise, reflecting higher export volumes and the expectation of higher prices. The main threat

to Australia not achieving these exports is capacity in coal supply chains, particularly in

Queensland.

Australia's metallurgical coal production is forecast to rise by 3 per cent in 2006-07 to 137

million tonnes and a further 5 per cent to 144 million tonnes in 2007-08

Metallurgical Coal

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Australian Thermal Coal Market

In 2006-07, Australian thermal coal exports were 111.6 million tonnes, an increase of less

than 1 per cent on the previous year. The moderate growth reflects capacity constrained

export infrastructure and the loss of around 2.5 million tonnes of throughput because of

natural calamities

The value of thermal coal exports in 2006-07 was $6.8 billion, a 6 per cent fall from 2005-

06, largely attributable to the appreciation of the Australian dollar against the US dollar.

Associated with higher production and infrastructure capacity, Australia's thermal coal

exports in 2007-08 are forecast to increase by 8 per cent to 121 million tonnes. Reflecting

increased export volumes and higher prices, the value of thermal coal exports in 2007-08

is forecast to increase by 11 per cent to $7.5 billion.

Thermal Coal

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Coal Export Market

Australia is the world's fourth largest coal producer. It exports approximately 60% of its annual production, making it the largest net exporter of coal (28% of global coal exports).

Australia is dominant in the market for coking coal, where it is responsible for over half of all world exports. Australia also leads the world in thermal coal exports, although it accounts for a smaller share of that market (around 21%).

Australia's thermal coal exports recently began to face new competition from China, raising the possibility that its share of that market may shrink in the future.

Japan remains Australia’s largest market for metallurgical coal, purchasing 34 percent of metallurgical coal exports in 2005 . The European Union (18 per cent) and India (13 per cent) were the next most important export markets for Australian metallurgical coal.

North east Asia (Japan, the Republic of Korea and Chinese Taipei) was the dominant regional destination for Australian thermal coal in 2005, accounting for around 86 per cent of thermal coal exports.

With total coal exports valued at $24.5 billion in 2005-06, coal accounted for 20 per cent of total commodity exports. This share is expected to increase further in the short term with the value of exports forecast to exceed $26 billion in 2006-07 (ABARE 2006). Coal provides the primary fuel for 76 per cent of total electricity produced in Australia.

Australia has a distinct competitive advantage in exporting thermal coal to the rapidly growing areas of the Asian region, largely as a result of lower freight rates.

The principal exporters of metallurgical coal are Australia, Canada, and the United States. Australia has a freight rate advantage over other major metallurgical coal producers, including Canada and the United States, in supplying the fast growing markets in India and China.

In addition, Australia has larger reserves of hard coking coal than other producers. As a result, Australia’s share of global metallurgical coal trade is projected to grow strongly over the outlook period, from 62 per cent in 2005 to 67 per cent in 2025

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Government Policies

Australia has a three-tiered federal system of government - Commonwealth, State/Territory

and Local.

Coal resources in Australia are managed by the State/Territory governments. Conditions for

mineral exploration and development in Australia are generally set out in State/Territory

Mining Acts and related regulations which specify the procedures to be followed for coal

exploration and exploitation.

Other State/Territory legislation covers a broad range of issues including safety,

employment, environment protection, royalties and transport within Australia. State

governments also levy taxes and charges for rail transport and in some cases for coal

loading.

In recent years, the Commonwealth Government has relaxed or abolished many

regulations affecting the coal industry. It has deregulated financial and foreign exchange

markets, reduced taxes and charges, relaxed foreign investment guidelines and removed

export control powers on coal.

According to Australian foreign investment rules, any foreign investment can be made into a

company up to 14.9 per cent without prior approval.

The Government has overseen reforms to workplace relations arrangements, which

encourage a more direct relationship between employers and employees, with reduced third

party intervention.

In the four years following the implementation of the reforms in 1996, coal mine productivity

increased by 72 per cent.

Competition policy reform is also having significant impacts on improving business

competitiveness through third party access for coal freight.

New South Wales and Queensland have fully embraced these changes, which has resulted

in significant reductions in rail freight rates. In June 2005, Federal and State government

leaders agreed to the further development of the national competition reform agenda.

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Indian Companies in Australia

Gujarat NRE is the first and only Indian company to own and operate coal mines in

Australia. Through its listed subsidiaries in Australia, the company operates two mines in

the New South Wales region, with combined resources of more than 560 million tonnes

of premium quality hard coking coal and their ownership accords the company the much

sought after cover against erratic supplies

World's sixth largest steel maker Tata Steel had purchased a a 5% stake in Carborough

Downs Coal mines in Queensland, Australia. Currently its is undertaking a large scale

expansion of the mine to ensure annual production of 4.9 million tons raw mineral (ROM)

to yield 3.7 million tons of coking coal and PCI coal from third quarter of 2009

Mr L.N. Mittal of Arcelor Mittal, announced that he had picked up 14.9 per cent stake in

Macarthur Coal, one of the top five companies in that sector in Australia.

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For Further Information Contact:Rajeev Phanse phanse@singhi.com, +91- 98201 43350

Neha Tandon neha@singhi.com +91- 98191 26661

Singhi Advisors Ltd.903, Raheja Centre, Nariman Point, Mumbai 400021.

Tel: 022-6634 6666 Fax: 022-6637 0383

Thank you …